Contracting Process Paper

CPMGT/302

September 21, 2015

Geri Markley, MBA

Contracting Process Paper

As a project's complexity increases in meeting the needs of the customer, the manner in which an organization manages its relations with suppliers and vendors becomes magnified.  The contracting process provides the vehicle in which organizations manage this relationship.  As such, we will outline and explain the high-level process steps fro conducting project procurements, as well as the contract administration policies and procedures.  We will describe various tools and techniques for the contract administration process, in addition to the conflict resolution techniques used while managing contractual relationships.  We will outline the steps to be taken to close out project procurements, while explaining the importance of closing out those procurements and accounts.  We will examine external influences on the procurement and risk management process, as well as analyze the relationship between the risk response plan and these external influences.  Finally, we will offer a summary of lessons learned by the team.

High-level Steps for Conducting Project Procurements

There are several high-level steps that comprise the framework of obtaining the goods and services required to complete a project. Several of these steps include:

1. Project Procurement Plan- will outline how the project team will plan, execute, monitor and control, and close all procurements, associated with the project.

2. Make-or-buy analysis- used to determine whether a particular product or service required for completion of the project must be made, in-house at a greater cost but with greater control over the product or service; or bought via outsourcing at a lower cost but also lesser control.

3. Procurement documents- allow the project team to communicate with prospective bidders what the project procurement needs are. These documents include a description of the desired form of the response, the procurement statement of work and any contractual requirements required by the project team.

4. Source Selection Criteria- utilized by the project team to rate and score vendor/supplier/contractor responses to request for proposals. These criteria allow the project team to select only those firms that, at the minimum, meet the procurement standards that have been identified that will ensure project success. (PMI, 2013, pp. 357-370)

Contract Administration Policies and Procedures

Contract administration is the process that focuses on managing the contractual relationship and obligations between parties that entered into a contract agreement. The process is managed by a contract administrator, overall responsible for understanding the contract terms, managing and monitoring changes, ensuring goods and services conform to the contract, maintaining all documentation, and closing out the contract. Regardless of the contract type, each company will establish policies and procedures to guide them through the procurement process. Listed below are a few of the contract administration policies and procedures:

1. Project Scope Definition – the scope definition provides the project details of the work that is to be completed.

2. Source Selection Procedures – source selection are procedures that must be followed to identify and select qualified suppliers. The procedures will state minimum criteria the supplier must meet to win the bid.

3. Bid Package – the bid package contains the information on the contents that must be included in the bid package and how it is to be distributed. The contents may vary based on the type of project, but typically include the content on change procedures, conflict resolution, and documentation archiving.

4. Terms of Payment Policy – the terms of payment policy provides the details on how the contract work expects to be invoiced, paid, and adjustments made to prior invoices.

Tools and Techniques for Contract Administration

The administration of contracts is managed using a number of tools and techniques to procure contracts. Listed below are the tools and techniques and how they are used in the procurement process.

1. Contract Change Control Process - The contract change control process provides the steps to modify or make changes to the signed contract and the responsible party for reviewing and approving all changes.

2. Procurement Performance Reviews - Procurement performance reviews is the process for evaluating suppliers and the method that the feedback will be provided. These reviews monitor the metrics such as timely delivery’s, the costs and the quality of the materials.

3. Inspections and Audits - Inspections and audits will provide a checklist of how contracts will be reviewed and audited. The inspection and audit process will rely on this process to ensure the contract terms remain in compliance and in scope.

4. Performance Reporting - Performance reporting provides tools to gather status updates on the performance of the project activities. Project meetings and status reports are often the primary way for project teams to review the project activities.

5. Payment process (n/30, n/60, and so forth) - The payment process is the method of ensuring that payment is made or collected against the product or service being delivered or billed under the contract terms. In terms of n/30, n/60 and n/90, this refers to the net days at which the total invoice is due. If an invoice states n/30, that invoice should be paid in thirty days, not one month which could be thirty-one days.

6. Records management system (RMS) - A records management system will function as the document repository for the contract and all project documentation. SharePoint is a RMS utilized by most organizations today to store, version and maintain shared documentation.

Contract Relationships Conflict Resolution Techniques

Sollish and Semanik offer that conflicts are normal in any relationship, but it is the manner in which those conflicts are handled which will determine the quality of these relationships (2012, p. 186).  As conflict is inevitable, it must be managed to effectively, particularly with regards to contractual relationships.  Prior to entering a contractual relationship, a plan must be in place that addresses the resolution of conflict in the event of occurrence.  This can be addressed in the project procurement plan or within the contract with the supplier or vendor.  The conflict response plan should address how each side will approach the conflict.  There are several techniques that can be used to find a resolution.  The first is negotiation, where there is back and forth communication between both parties to reach a solution.  The second method is mediation, where an impartial person listens to arguments from both parties and works with each one to reach an agreement that is mutually beneficial to both parties.  The final technique is arbitration where an impartial person listens to both parties' arguments, similar to mediation; however, this impartial person makes the final decision of the resolution. 

Steps to Close Project Procurements and Financial Accounts

All things must come to an end at some point or another, this includes projects. This is done through using closure procurements. Closure procurements are a process that confirms that elements of the contract that are to be handled by either the seller or buyer have accomplished. Closure of procurements is important in the cycle of the project because it documents procedures for future reference. Procurement closure can be done at the end of the project or at the end of each project phase. Steps for the closure of the procurements and accounts can be outlined in the procurement management plan.  

There are five key steps in the closing of projects. The first step is to conduct a review of the project to determine how successful the project was. This is done by gathering information and analyzing the project charter to determine whether the project stayed within the scope and to determine the level of success of the project. The second step is to conduct a meeting where the members of the project can discuss any lessons that where learned during the project. The third step is evaluating the performance of the members of the project and then release them back to their respective departments. The fourth step is finalizing the financial accounts. This means to close the account and transfer assets to pay any bill that is owed. Closing financial accounts is important because it ensures the financial activities are accurate and complete. It also prevents paying penalties on invoices that are not paid or received on time. The last step in the process is to document everything and archive the information for possible future use.

External Influences on Procurement and Risk Management Process

Risk Management Process

External risks are outside the control of the project team and its host organization. Because of this, eternal risks are general more difficult to predict and control. Factors such as a key vendor going bankrupt, economic upheaval, wars, crime, and other events may directly impact the project’s effectiveness. Some risk may be difficult to foresee such as a mine in a foreign country providing essential elements for the project being taken over by a revolutionary government. This kind of event directly threatens the project, but often takes project managers by surprise because of a deficient analysis of external threats.

Procurement Management Process

External factors can affect who a project does business with and how. A project is a vulnerable entity that is at the whim of external forces, be they financial, political, technological, socio-cultural or environmental.

The financial environment, which includes economic performance, has a major effect on how buyers conduct their procurement operations. One of the main challenges the financial environment poses to business is currency fluctuation. Buy at the right time and return on investment can be substantial; invest at the wrong time and the project may lose money.

Risk Response Plan and External Influences

External influences are those that cannot be controlled by the project. They can be brought on from a wide variety of events. Some may be from environmental factors, community desires, political or religious beliefs, and education levels. These factors have the ability to influence or change, creating risks to the success of the project. . “Sponsors are often the first line of defense to protect the project from external influences” (Kerzner, 2013, p. 486).

Their relationship with the risks listed in the risk response plan are ongoing and ever changing. Some mature and evolve while others are easily addressed. The external influences may be dealt with such as other risks by using risk avoidance, transfer, mitigate, and accept.

· Avoid – Here is when the project team decides to act by eliminating the treat or protecting the project from its influence (PMI, 2013, p.344). This may be used with geographical or some physical influences as an example.

· Transfer – Moving the influence to a third party or another body more capable of dealing with them (PMI, 2013, p.344). If the influence is political or legal in nature the company may have better section for dealing with them.

· Mitigate – would be too eradicated or reduce the impact of the external influence on the risk (s) affected (PMI, 2013, p.345). This may be used for any influence because it holds the most positive output for the projects overall success.

· Accept – Understand that there is an influence there however choosing to do nothing unless the influence it is activated (PMI, 2013, p.345). This approach may best work with influences requiring a reaction to happening: weather events, protests, or economic unrest.

Only through understanding what may happen and what will happen would the project team be able to accurately catalog the influences existing from externals. Knowing how to deal with the variation of influences and the best strategy for reduction, avoidance, transference, or mitigation of them lies within the risk response plan. Remember that the best strategy might just be transference to the project sponsor as they may be better suited for the task.

Summary of Lessons Learned

Learning Team A identified lessons learned from this course. Tami, Juan, and Steve learned a lot about contracts. Understanding the differences with the types of contracts, how those variations affect the project and risks associated was where most of the learning took place. Another high point was determining the foundation, principles, and tools or techniques with contract administration, Tami found this material most beneficial. Juan felt that the contract material regarding the different types and how they move risk from one side (buyer or seller) to the other with the various contracts was his. Steve had little experience with this in the professional world so his learning happened all through the course. Overall the learning team identified contract administration, contracts, and contracts variations.

Conclusion

We have outlined and explained the high-level process steps for conducting project procurements, as well as the contract administration policies and procedures.  We described various tools and techniques for the contract administration process, in addition to the conflict resolution techniques used while managing contractual relationships.  We outlined the steps to be taken to close out project procurements, while explaining the importance of closing out those procurements and accounts.  We examined external influences on the procurement and risk management process, as well as analyzed the relationship between the risk response plan and these external influences.  Finally, we offered a summary of lessons learned by the team.

PMI, Project Management Institute. (2013). A Guide to the Project Management Body of Knowledge (PMBOK) (5th ed.). Retrieved from The University of Phoenix eBook Collection database.

Assignment 1

This assignment consists of three steps that should be completed. You need to develop an Entity Relationship Diagram (ERD) based on the below database project proposal.